The aptly named Business ByNetsuite program guarantees at least 50% savings to current SAP R/3 customers relative to – watch this! – the annual maintenance fees they are now paying to SAP. Yes, it’s not a price-to-price comparison. With the perpetual licence model customers pay upfront, but are still forced to pay annual maintenance fees – with SaaS there is only a subscription fee, and now NetSuite proves it can be half of only the maintenance component of traditional software’s TCO.

Read on to find out how SAP’s own blunder around their excellent product, Business ByDesign opened the opportunity for Netsuite…

Phil quotes Greg Olsen, CTO of Coghead, a web-based development platform which moved its servers to the Amazon infrastructure recently:

“As ironic as it may be, we continue to see software applications deployed as a service but which fail to use any service-based infrastructure themselves”

“The move to SaaS applications built on SaaS is a much more profound shift than the move from on-premise applications to SaaS applications …”

“Ironically, some of the first victims of this new economy may be some pioneers of the software-as-a-service movement. Today, many established SaaS application providers are applying much more of their precious focus and capital to infrastructure issues than newer competitors that are aggressively utilizing service-based infrastructure … the build-it-all-ourselves SaaS application vendor … will ultimately end up as [an] anachronism.”

Today’s Amazon outage appears to rebuff Phil and Greg’s point. Reality check: this is the first time Amazon S3 went down, and it’s already back up. Salesforce.com had its fair share of outages, so did other SaaS providers, and so did just about any in-house systems companies run their own installed software on. I’m a big believer in focus, specialization and I trust the few mega-cloud companies that will emerge can maintain a more robust infrastructure than we could all do individually. (So yes, if it’s not obvious, I do buy into Nick Carr’s Big Switch concept.)

Another approach is to look at where value can be added: the consensus view from a quick Enterprise Irregulars chat is that infrastructure will be commoditized faster (or it already is) than software, where there is a lot more room for innovation by new and – thanks to outsourced infrastructure – smaller players.

And if acronyms were not ugly enough already, here’s to entering the age of SaaS-on-SaaS.

Update: What better confirmation of my point than today’s rumors about EMC hostingSAP’s system – I assume it’s Business ByDesign, the new On-Demand offering for the SMB market. (Side-note: I’ll be traveling and be time and Internet-challenged for the next three weeks, but SAP’s BDD is one of the subjects I will come back, as it seems to be largely misunderstood. Oh, and I just love the fact how Mozy, my favorite online backup service is often referred to in the EMC story).

It’s *the* hidden business model enabled by SaaS. An opportunity not talked about, but so obvious it has to be on the back of all SaaS CEO’s mind. Benchmarking is a huge business, practiced by research firms like Forrester, Hoovers, Dunn and Bradstreet, as well as by specialized shops like the Hackett group – none of which are affordable to small businesses. More importantly, all previous benchmarking efforts were hampered by the quality of source data, which, with systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking.

Hosting customer data offers a lot more opportunities, beyond benchmarking. Tomorrow CRM provider Salesforce.com will launch a new service called Salesforce to Salesforce (S2S) that facilitates the sharing of data between customers -reports TechCrunch. I believe, just like Freshbook’s move, the ramifications of this new Salesforce service will go way beyond the immediate opportunities it brings to customers ( not that those are negligible: see first reaction by Echosign CEO Jason Lemkin, another business innovator in my book.)

This is a first step in a paradigm-shift: while current concerns about SaaS mostly focus on the security, privacy, and consequently isolation of business data, eventually a culture of controlled sharing for business benefits will develop. Forget CRM; think of more complete business suites, like NetSuite, or when it really kicks in, SAP’s Business ByDesign, the most comprehensive SaaS business suite ever. Procurement, manufacturing, inventory, resources…etc data – can you envision the improvements in Supply Chain visibility? SaaS will never be the same – again.

Today, the service is predictably focused on sharing sales lead and CRM-type information. But as Salesforce.com grabs more large customers its possible that the latest service could be used to exchange supply chain information and link other business processes.

My bet is on SAP: they may stumble a number of times, which will effect their quarterly numbers – but in the end, I believe they will succeed. They will become the dominant SaaS player in the mid-market, forcing smaller players like NetSuite down-market. In the next 2-3 years while SAP flexes their On-demand muscles, we’ll see just how pervasive SaaS proves in the large corporate market, and that will determine whether A1S remains a midmarket solution or becomes the foundation of SAP’s forey into that market – their natural home base.

This was the day before the announcement. This morning my fellow Enterprise Irregulars jokingly asked: “Has the world of Enterprise Software really changed?’ We did not know the answer than, but now we do: Yes. SAP Business ByDesign is really a game changer. Key reasons:

I really would have liked to be at TechCrunch40, temporary HQ of all-things-Web. Instead, I’m in New York, where the world of Enterprise Software will change tomorrow. That’s when SAP will unveil A1S, the new generation SaaS solution for the SMB market. Incidentally, this may be the last time we hear A1S, as SAP is expected to reveal a new name.

I suspect after Wednesday there will be a lot of talk about the new system’s features, but for now, very few people have actually seen it, and they are all under rock-solid NDA. So for now, just a few preliminary thoughts.

SaaS and Enterprise Software

I am a big fan of Software as a Service, have repeatedly written about it, but mostly in the context of the small business or consumers space. My own passion comes from the time when I switched from “sell side” in the SAP business to actually being a customer in a small business (Sales VP, NOT IT type!) and was shocked at the sorry state of infrastructure and systems (more lack of) available to most SMB’s. I became convinced that for small businesses that don’t have IT staff at all, On-Demand solutions are the only way to go.

Does this mean SaaS is for small businesses only? Not at all. While it’s easy to declare that for small businesses without their own IT resources there is no better option than SaaS, there is no clear “winner” for large corporations. There shouldn’t be. SaaS is not a religion; adopting it should be a business decisions that these organizations have to make individually.

SAP and SaaS

On-demand “purists” (the religious types;)) have long criticized SAP for being laggards, taking a half-hearted hybrid approach to SaaS – but why would they do anything else? After all, SaaS is still only 10% of all enterprise software sold, although growing fast. Even if we believe “the future is SaaS” (which is of course unproven, but I happen to believe in it), there is a lot of mileage left in the “old” Enterprise model, and market leaders like SAP have certainly no reason to turn their backs to their huge and profitable customer base. Protection of the legacy market is largely the reason behind the segmentation, i.e. A1S being strictly a small- and midmarket solution – but I don’t believe this segmentation is cast in stone.

Anyone who saw one of Hasso Plattner’s numerous “new idea” presentations will have to realize he is talking about a lot more than just a new SMB product. Plattner “gets it” and if he does, so will SAP. Clearly, for now the product is slated for the SMB market – new product, new markets – but it also allows SAP to get their feet wet in SaaS, before fully plunging in.

This also explains what may appear as inconsistency at the low-end of the market (less than 50 employees) where SAP continues to offer Business One, their on-site solution. I fully agree with Dennis , for all the above reasons it’s exactly these businesses that would be better off with SaaS, so perhaps Busiess One should be replaced by A1S. But if SAP considers A1S as a test-bed, eyeing the Enterprise Market, they need a certain minimum organization size, and level of complexity. Complexity, after all, originates in the organization, not the software – but this brings us to the next point.

So why is it such a Big Deal?

Believers of the “SaaS Religion” should be happy when a behemoth like SAP throws in it’s weight – and the $400M it expects to spend on marketing A1S. But let’s dispel with a huge misunderstanding here. I literally go nuts when analists (even my fellow Enterprise Irregulars) mention SaaS players like Salesforce.com, Netsuite, Succesfactors, Constant Contact on the same page, as one category. For the purpose of a specific analysis, like Charles did, it makes sense, but please, please, let’s remember, the so-called SaaS market is an artificial aggregation that eventually will make very little sense.

Companies do not buy software just for the sake of having it: they buy it to solve problems. They need inventory management, order and billing systems.. etc – not simply SaaS, just like in the past they could not care less if their software was delivered on tape, CD or DVD. Yes, I know I am simplifying to a great degree, but remember, It’s all about the functionality, not the delivery method.

So labeling Salesforce.com the “market leader” is misleading – yes, they are the the largest pure-play SaaS player, but a relative point solution with a fraction of the functionality enterprises need – and the Appexcange / Force.com attempt to become a platform has not changed this picture.

There is no market leader in On-Demand, complete integrated solutions, because so far no company has offered anything comparable to SAP’s functionality. Granted, I have not seen the system yet, but when SAP puts three tousand developers to work for 3 years, you know you are getting something significant. (In comparison Salesforce.com has less than 200 engineers.)

It’s all about Execution

The SaaS model allows for largely simplified business execution: marketing, awareness, “pull model”: instead off direct sales, the customer comes to the vendor, buying solutions on the Net. Consulting, Support all happens online. The reality of this pull-model is still debated, but I think waht’s often forgotten in the debate is that the “pull-efect” really works is the “S” part of SMB, (in fact, VSB), which are typically green-field businesses, often first-timers to transactional business software, without their own processes carved in stone, so they can test, configure and use software “out-of-the-box”. As we discussed, with size comes complexity, and since SAP targets the high-end of SMB, they will face such complexity, and that requires a “hybrid” model.

So far their Go-to-market strategy appears to be largely based on telesales and leaving support to a network of partners. Where these partners come from: existing All-in-One or Business One partners, or new ones – and if the first, how they will not cannibalize their existing business is a huge question.

A1S is a big bet for SAP,” said Gartner analyst Dan Sholler. “This has to succeed or they will have a whole host of business challenges ahead of them. No one has ever proven they can sell this type of business technology this way. SAP is betting the profitability of the company that it will be able to do it.

My bet is on SAP: they may stumble a number of times, which will effect their quarterly numbers – but in the end, I believe they will succeed. They will become the dominant SaaS player in the mid-market, forcing smaller players like NetSuite down-market. In the next 2-3 years while SAP flexes their On-demand muscles, we’ll see just how pervasive SaaS proves in the large corporate market, and that will determine whether A1S remains a midmarket solution or becomes the foundation of SAP’s forey into that market – their natural home base.

SAP understands New Media

Last but not least, a word on how SAP “gets it”. Part of Hasso Plattner’s “new idea” sounds like a Web 2.0 pitch: he embraces social networking, wikis, videos. How much, if any of these have made it into the first incarnation of A1S remains to be seen.

But SAP as a company themselves actively embrace new media. They have the best bloggers’ program, originally started by Jeff Nolan and now enjoying continued support by Michael Prosceno. I’m heading to the Big Show on Wednesday, but first tonight I’ll be in a group of 8 bloggers to meet SAP CEO Henning Kagerman. Two weeks later I will attend SAP TechEd, which, for the first time includes a full Community Day – an event certainly to be popular by bloggers. Oh, and who is the first keynote speaker? Mr. Web 2.0 Tim O’Reilly himself.

Not exactly dinosaur-like behavor, if you ask me.;-)

Off now, time to play tourist in Manhattan. And, in the meantime, I’ll be kept more then up-to-date on TechCrunch40 thanks to fellow bloggers on the scene.:-)

For half an hour or so I felt I was back at University at Software 2007 – in Professor Hasso Plattner’s class. That’s because his keynote was a compressed version of his recent SAPPHIRE 07 speech, which in turn was an “offsite class” for his Stanford students – literally so, he flew the entire class out to Atlanta. To make his point, he used the blackboard-metaphor, with chalked handwriting (and dressed in matching black).

I don’t normally enjoy keynotes, but found this one fascinating: it was about a lot more than most in the audience thinks – more on this later…

The “lecture” was about his New Idea for enterprise software – more than an idea, it started as a side-project about 5 years ago, then about 3 years ago they realized they can’t do it with one codebase.. so it became a completely separate system from SAP’s current business suite. They kept the project secret as long as they could, but this year they started to talk about it: it’s code-named A1S, and currently 3000 people are working on it (For comparison, Salesforce.com has less than 200 engineers). It will be On-Demand, and not a point-solution, but a full-featured, integrated business solution, as one would expect from SAP.

Some of my raw notes on the key concepts:

On-demand: Google, Salesforce.com showed it works. Time now for the whole enterprise to run in the cloud. Very small footprint at customer.

New markets: small business customers.

Key difference: user-centric design. Iteration, version 7 of user interface already, it will be 8 or 9 before it launches. Every single functions delivered either by browser or smart client. They look 100% identical. Office (MS) client, Mobile, too.

Event driven approach. Model based system. Instead of exposing source code, expose the model. Not just documentation, active models. Change system behavior through models. Very different from SAP’s original table-based customization. Completely open to access by/ to other system. 2500+ service interfaces exposed.

The future of software design will be driven by community. SDN 750K members, 4000 posts per day. We’ll have hundreds of thousands of apps from the community. Blogs, Wikis, Youtube.

In-memory databases. Test: 5years accounting, 36 million line items. 20G in file 1.1G compressed in memory. Any question asked > 1.1sec. There is no relational database anymore. Database can be split over multiple computers. Finally information will be in the user’s fingertips. Google-speed for all Enterprise information. Analytics first, eventually everything in memory.

As it became obvious during the post-keynote private press/blogger discussion, most in the room thought Plattner was talking about the mysterious A1S, SAP’s yet-to-be-seen On-Demand SMB offering – although he made it clear he intentionally never used the A1S moniker. I think what we heard was a lot more – but to understand it, one has understand Hasso Plattner himself. No matter how his formal position changed, the last active SAP Founder has always been the Technology Visionary behind the company – the soul of SAP, it there is such a thing. He is not a product-pusher, not a marketer: he sets direction for several years ahead.

SAP has an existing (legacy) market to protect, and they clearly don’t want the On-Demand product to cannibalize that market. But Plattner knows On-Demand is coming, and I bet the SMB space will be the test-bed to the new system eventually “growing up” to all of SAP’s market segments. Hasso Plattner gets the On-Demand religion, and when he gets a new religion, SAP typically follows. Plattner oversaw two major paradigm changes: the move from mainframe to client/server, which was entirely his baby, and the move to SOA/Netweaver, where he embraced Shai Agassi’s initiatives. The ‘New Idea” will likely be the last time Plattner turns the Mothership around. Next he will need to find “another Shai” to make sure there is a strong tech DNA in SAP’s leadership, as the Sales/Marketing types take over at the helm.